Servicing

Four classes of GSMPS Mortgage Loan Trust 2005-LT1 have been downgraded by Standard & Poor's Ratings Services. The downgrades were as follows: class M-1, from AA to A; class M-2, from BBB to BB; class B-1, from B to B-minus; and class B-2, from CCC to CC. S&P also affirmed the ratings on five classes from the transaction and another GSMPS deal. The downgrades "reflect the continued adverse performance of the collateral pool, resulting in the reduction of the available credit support available to support the affected classes," the rating agency said.

Nine classes of subprime asset-backed pass-through certificates issued by Ace Securities Corp. Home Equity Loan Trust have been downgraded by Standard & Poor's Ratings Services. The affected securities were in series 2004-HS1, series 2006-HE3, and series 2006-HE4. S&P also affirmed the ratings on three classes from series 2004-HS1. The downgrades were attributed to "adverse collateral performance that has caused monthly losses to exceed monthly excess interest." S&P added that the amount of loans in the delinquency pipeline "strongly suggests that monthly losses will continue to exceed excess interest, thereby further compromising credit support." The collateral consists primarily of subprime first-lien mortgage loans.

Estimates for the next round of earnings results at UBS anticipate that it will see further mortgage-related writedowns, but that they will be mitigated by exposure reductions and hedging that will likely leave the company "at or slightly below break-even." UBS said that "in particular, credit valuation adjustments on monoline insurance exposures" are expected to lead to further writedowns and losses. But overall, UBS said its capitalization is sound. "At the end of the quarter, UBS expects its Tier 1 capital ratio to be approximately 11.5%, and has no need to raise new equity," the company said.

Mortgage servicers increased their loss mitigation efforts by 26% from February to March as 49,000 borrowers agreed to loan modifications or payment plans, according to the first Mortgage Metrics Report from the Office of Thrift Supervision. The new OTS report uses loan-level data to examine the loss mitigation activities of the five largest OTS-regulated thrifts and their affiliates: Washington Mutual, Countrywide Financial, IndyMac, Wachovia FSB, and Merrill Lynch. The data show that 71% of the loss mitigation actions involved loan modifications rather than payment plans. However, subprime borrowers are more likely to get a loan modification than prime borrowers. "Prime mortgages received the fewest loan modifications relative to new foreclosure actions," the OTS report says. The report also indicates that new foreclosures in the first quarter were driven mainly by prime and alternative-A loans, not subprime loans.

Moody's Investors Service has downgraded Long Beach Asset Holdings Corp. CI 2006-WL2NIM notes, series 2006-WL2, class N-2, to A3 from Aa3. "These securities have been downgraded based upon performance of the underlying transactions that has negatively impacted future residual payments to the NIM holders as well as the downgrade of the insurance provider," Moody's said. The deal's performance "relies on excess spread and prepayment penalties generated by the underlying residential mortgage-backed securities and an insurance policy provided by Radian," according to the ratings agency.

The California Reinvestment Coalition says mortgage servicers and lenders are still not working with borrowers who need loan modifications in order to keep their homes. In a third survey of California mortgage counseling agencies servicing homeowners statewide, CRC said it found that despite lenders' promises to help borrowers, foreclosure is still the most common outcome for homeowners struggling to make mortgage payments. "With little accountability, obligation, or oversight, home loan servicers are not doing enough to keep borrowers in their homes," says Kevin Stein, CRC associate director. "For some borrowers, this may mean that they will be doubly victimized by predatory lending practices on the front end, and now by unhelpful loan servicing practices that lead to foreclosure on the back end. We must work immediately and diligently towards solutions to avoid this result." CRC released the report "The Continuing Chasm Between Words and Deeds III," at a press conference held at counseling agency in Stockton, Calif. The report analyzes a survey of 42 mortgage counseling agencies that served 11,062 borrowers in April 2008.

Hope Now servicers helped nearly 170,000 at-risk borrowers stay in their homes in May, but they could not keep up with the record pace of workouts (185,000) completed in April. Nevertheless, Hope Now executive director Faith Schwartz says the pace of workouts is accelerating and the second quarter tally will exceed first quarter workouts. The second quarter results are going to "blow away" the first quarter, said Hope Now advisor Stan Collender. The May data shows that the servicers completed 67,300 loan modifications for prime and subprime borrowers in May, compared to 77,400 in April. Hope Now also reported that 83,000 families lost their homes in foreclosures in May. The Center for Responsible Lending claims that the Hope Now initiative is failing to keep up with the accelerating foreclosure crisis. "Delinquencies and foreclosures keep going up and tens of thousands of loans 'fixed' voluntarily by the industry have already gone bad," CRL executive director Debbie Goldstein said.

Mortgage companies hired 1,500 full-time employees in May, ending 14 consecutive months of workforce reductions, and it could be a sign that the jobs drain may be ending soon. The U.S. Bureau of Labor Statistics reported Friday that employment in the mortgage banker/broker sector rose from 356,300 in April to 357,800 in May. A Mortgage Bankers Association economist expects to see more layoffs over the next few months. However, MBA senior director of economic forecasting Orawin Velz says industry employment could bottom out around 348,000. The previous uptick in mortgage jobs was in February 2007 when the industry had 489,800 employees. Since then, 132,000 people have lost their jobs or left the industry.

Five classes of notes in North Street 2000-2 Ltd., a subprime mortgage-related collateralized debt obligation, have been downgraded by Fitch Ratings. The downgrades were as follows: tranche A, from AA-minus to B; tranche B, from BBB-plus to CCC; tranche C, from BBB-minus to CC; tranche D, from BB-plus to CC; and tranche E, from CCC/DR4 to CC/DR4. Fitch said the downgrades stemmed from higher loss expectations in the subprime residential mortgage-backed securities portion of the partially funded synthetic CDO portfolio. Fitch can be found online at http://www.fitchratings.com.

Seven classes from six net-interest-margin securities issued by Nomura Asset Acceptance Corp. have been downgraded by Moody's Investors Service. The downgrades were as follows: Cayman Nomura Asset Acceptance Corp. NIM series 2005-S3, class A, from A3 to C, and series 2006-S5, class N1, from A1 to C, and class N2, from Baa1 to C; Nomura Asset Acceptance Corp. Trust NIM 2005-S4, class A, from Baa2 to C, NIM 2006-S1, class A, from Baa2 to C, NIM 2006-S3, class A, from Baa2 to C, and NIM 2007-S1 class N1, from A1 to C. The downgrades were based on "high levels of delinquency and loss in the underlying second-lien mortgage-backed transactions that [have] rendered any future residual payments to the NIM securities unlikely," Moody's said. The transactions rely on excess spread and prepayment penalties generated by the underlying residential mortgage-backed securitizations.